CAPCO Categories

Defunct Investment Program for Fledgling Firms Paid Off in Big Way

Wisconsin’s CAPCO program expired in 2009, but it provided excellent job growth:

A program that used state tax credits to invest in promising Wisconsin technology businesses has paid for itself several times over, according to a study by Donald Nichols, UW-Madison emeritus professor of economics and public affairs.

Approved by the state Legislature in 1998, the program raised money from insurance companies to provide $50 million in early financing to young Wisconsin businesses. In return, the insurance companies got tax credits and gains on their investments. The Legislature did not act to renew the CAPCO program when the credits expired in 2009.

But two CAPCOs, Advantage Capital and Stonehenge Capital, dished out $34 million in funds between 1999 and 2009. A third, Wilshire Investors, did not provide its results. But through the other two:

• Twenty-three companies received investments through the program.
• Those companies hired 898 new workers who earned average salaries of $68,650, or a total of $61.6 million.
• The companies attracted another $485 million in outside funding through 2009.
• Personal income tax paid by the employees is estimated at $6.9 million a year.

The study did not look at additional state revenue from corporate taxes the companies paid.

John Neis, a managing director of Venture Investors, which handled investments for Advantage, said for many of the companies, the money came at a crucial time. For instance, in 2000, TomoTherapy, which makes specialized radiation machines for cancer treatment, was down to $125,000 in the bank with 28 employees.

“They did not have Food and Drug Administration clearance yet. They were still three years away from their first sale and they were having a difficult time attracting investors,” Neis said. CAPCO money helped lead a funding round, getting TomoTherapy far enough along to get FDA approval. Today, the company has 600 employees, about 350 in Wisconsin.

“Would they have survived (without it)? I’m not sure how they would have,” Neis said.

TomoTherapy is, so far, the biggest success. At least one of the funded companies, FoodUSA.com, failed, and another, OpGen, moved its headquarters and most employees to Washington, D.C.

Though the program wasn’t renewed, Ben Depuy, executive director of the National Coalition for Capital in Washington, D.C., said Wisconsin’s CAPCO program was “very strong. Job growth has been excellent,” he said.

Depuy said several other states have similar programs. “These programs aren’t quick fixes, but over time, they do provide a good return on investment,” he said.